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capital assets. Allocable wages means the shareholders’ Bonus Depreciation
allocable percentage of total wages paid by the bank. In The act allows taxpayers to expense 100 percent of the COMMUNITY BANK
other words, a 10 percent shareholder will be provided cost of depreciable assets purchased and placed into EXPERIENCE
a figure equal to 10 percent of the total wages paid by service after September 27, 2017, and before January 1,
the S corporation. Considering that most banks pay sig- 2023. This goes into effect immediately. The deduction
nificant wages to officers and employees, we would not percentage begins to phase down for property placed in CORRESPONDENT
expect for that limitation to cause many concerns. service after January 1, 2023. Unlike the pre-act law, the BANK EXPERTISE
There are other limitations that apply to service-ori- new legislation allows for full expensing of the cost of
ented businesses such as physicians, attorneys, accoun- an asset if it is the taxpayer’s first use, even if the origi-
tants and other businesses where the most significant nal use of the property did not begin with the taxpayer.
asset is the expertise of the people. These should not be Fixed Income Securities Sales
of concern to the bank itself, but may impact customers. Tax Credit Bonds
To compare the overall effective rate in comparison Banks that have occasionally included the purchase of •
to C corporations, at most a shareholder would pay 37 tax credit bonds in their investment portfolio will no Bond Accounting & Safekeeping
percent on 80 percent of the income leading to an ef- longer have that option as the act repeals the ability to
fective rate of 29.6 percent on the ordinary income. issue tax credit bonds. Under the prior law, tax credit •
This 8.6 percent difference between maximum C and S bonds were issued for projects where holders would get Loan Hedging (ARC Program)
corporations’ tax rates represents an increase from the a tax credit in lieu of a portion of interest from the is- •
pre-act law, which yielded a spread of 4.6 percent (39.6 suer. No new tax credit bonds can be issued after De-
percent versus 35 percent). cember 31, 2017. The prior rules will continue for bonds Commercial & Industrial Credits
issued before this date. •
FDIC Premiums International Services
Institutions with consolidated assets over $10 billion Itemized Deductions and Mortgage Interest
will now be limited on the amount of FDIC premium We expect a large number of married taxpayers who have •
payments that may be deducted. The limitation will been itemizing deductions will now find it more advan- Clearing/Cash Management
phase out between $10 billion and $50 billion. Thus, in- tageous to take the standard deduction, which has been •
stitutions with consolidated assets more than $50 bil- increased to $24,000 for married-filing-jointly status.
lion cannot deduct FDIC premium payments. This may have a subtle impact on lenders where the de- Asset/Liability Management Reporting
cision to accelerate the principal payoff of the mortgage
Net Interest Expense becomes more attractive since certain taxpayers may no
The act limits the deduction of interest expenses to the longer receive a benefit in the form of a tax deduction 512.681.4452 800.848.8573
sum of business interest income, 30 percent of the busi- for mortgage interest payments. In addition, taxpayers
ness’ adjusted taxable income and floor plan financing initiating new home loans will be subject to different
interest. Net interest expense is defined as business rules regarding mortgage interest deductions. The act
interest in excess of interest income. Adjusted taxable limits the mortgage interest deduction to $750,000 of
income for purposes of this provision includes earn- new acquisition indebtedness. The $1 million limitation 111 Congress Avenue, Suite 400
ings before interest, taxes, depreciation and amortiza- remains for older debt. The act puts a moratorium on Austin, Texas 78701
tion (EBITDA). Businesses with average annual gross the deduction for interest on home equity indebtedness
receipts of less than $25 million are excluded from this for tax years beginning after December 31, 2017.
provision. Banks may see customers structuring trans- www.csbcorrespondent.com
actions differently by seeking additional equity invest- S
ment to avoid being subject to these limitations. Visit Us
onsider this as a brief introduction to just
Moving Expense a small number of the changes in the act.
The act eliminates the deduction related to moving While some of the revised or new code is
expenses of an individual, whether paid for by the in- rather complex and lacking in guidance or
dividual or paid by employer. Banks that pay for the Cinterpretation, it seems evident that most
relocation of an employee can no longer deduct that re- profitable businesses should benefit dramatically from
imbursement. The individual will not be able to deduct the lower rates. It will be interesting to see the effect on
unreimbursed expenses on their return either, so they the economy and banking industry. H
may be seeking relocation bonuses in lieu of the reim-
bursement. This will increase the bank’s cost to relocate Michelle Mullen is a tax principal at Briggs & Veselka Co., an
an employee or new recruit. IBAT associate member based in Houston.

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